Thursday, March 31, 2011

This is so wild I don't even know where to begin. And it's a Sunday, so I'm pretty much going to pass this news release through verbatim:

Scientists today described a discovery that could underpin a new genre of fire-fighting devices, including sprinkler systems that suppress fires not with water, but with zaps of electric current, without soaking and irreparably damaging the contents of a home, business, or other structure.

"Controlling fires is an enormously difficult challenge," said Harvard chemist Ludovico Cademartiri, who reported on the research. "Our research has shown that by applying large electric fields we can suppress flames very rapidly. We're very excited about the results of this relatively unexplored area of research."...

...In the new study, they connected a powerful electrical amplifier to a wand-like probe and used the device to shoot beams of electricity at an open flame more than a foot high. Almost instantly, the flame was snuffed out. Much to their fascination, it worked time and again. ...MORE

That was on the 27th. On Tuesday he followed up with:

Much more on the amazing use of electricity to put out fires

Some readers expressed a burning desire to read more about the seemingly magical fire wand briefly described here on Sunday, so I tracked down one of the scientists who led the work.

Ludovico Cademartiri, a postdoctoral fellow in the research group of George Whitesides, a highly respected chemist at Harvard University, was happy to oblige. As it happens, the potential uses of this technique go far beyond fire control.

Here, then, is my conversation with Cademartiri, who insists I didn't butcher his name.

Tell me exactly what you did in the lab to demonstrate this phenomenon.
The experiments were fairly simple. We generated a methane flame that is tall and thin. Then we generated an electric field in the vicinity of the flame. To do that we used an electrode or metal wire covered with an insulator, which we pointed at the base of the flame. The wire was connected to a high voltage amplifier and the result of this setup is that we exposed the flame to an oscillating field gradient. The response of the flame was that, in certain conditions, especially at very high fields and frequencies, the flame would be literally pushed away from the burner and put out. It was a very strong effect compared to anything that has been shown before in regard to electric fields and flames.

What did you think when the flame went out the first time?
I thought "Well, that's weird." As a scientist you find it fascinating, but you have to control your emotions and ask how nature is trying to deceive you. I was thinking, "What is wrong with this experiment? What did I do wrong?"...MORE

This is going to have to be a big financial exit if investors are to be kept happy.

Here's the story:

BrightSource Energy of Oakland, Calif. has raised $201 million in a Round E bringing its total funding to more than $530 million in private equity. That funding is in addition to a federal loan guarantee of $1.3 billlion. The investors include Alstom, a French power plant player as well as the usual suspects -- Vantage Point Venture Partners, Alstom, CalSTRS, DFJ, DBL Investors, Chevron Technology Ventures, and BP Technology Ventures, together with new investors.

BrightSource is building one of the world’s largest solar power plants (solar thermal, not photovoltaic) in San Bernardino County, California -- the Ivanpah project. According to an article written late last year by GTM Research Solar analyst Brett Prior, NRG Solar signed a letter of intent to partner with BrightSource to construct, finance, own and operate the 392-MW Ivanpah plant. NRG will become the lead investor, although Bechtel (the EPC firm) will also be an equity investor....MORE

Yes friends, we're on the WASDE beat. It comes out on April 8th, here's the WASDE site.
Here's the March 10 report.
From DTN:Watch WASDE for Corn "Ending Stocks

Friday's supply-demand report should show a lower domestic ending stocks number and stocks-to-use falling below 5 percent, reaching a new record-low, said DTN Grains Analyst John Sanow, on the heels of today's strong usage.

He's not alone; Alexis Maxwell reported that Lanworth also is looking for a lower ending stocks estimate than the 675 million bushels USDA projected in early March. "Ahead of the report, we were looking for grain stocks of 6.5 billion bushels, based on an increase in animal units to 93.2 million grain consuming animal units this year from 91.6 million in 2010," she said. "At 6.523, USDA's quarterly report confirms our expectations."...MORE

Correction: I double counted the shares. The combined loss in market cap, at this moment, is $4.34 Billion.
The original headline said "$9 Billion". Regret the error and all that.Original post:
Not personally but the combined loss in market cap of the A and B shares is $8.95 Billion.

The Nuclear Regulatory Commission has allowed reactors to phase out some equipment that eliminates explosive hydrogen, the gas that blew up the outer containments of three reactors at the Fukushima Daiichi in Japan. The commission says it judged that at the American plants, the containments were strong enough that the equipment was not needed or other methods would do....MORE

Sokol snapped up 5,450 shares on Wednesday and 3,500 shares on March 11, all for $15 a share, according to securities filings. He also went on a buying spree last November, when he bought 16,700 shares in four different transactions.

Sokol now owns 20.24 percent of the bank’s common stock. He won authorization in October to boost his ownership stake from 20 percent to 30 percent, and apparently plans on getting there a few thousand shares at a time.

Sokol has a family connection to Middleburg’s CEO Gary Shook. Sokol’s daughter married the brother of Shook’s wife, and Shook was a groomsman in the wedding.
Middleburg’s stock was trading at $15.90 Friday morning. Its 52-week range is $13.33 to $18.

Also at the WBJ:

David Sokol resigns from Berkshire Hathaway …Middleburg Financial Corp.’s sugar daddy David Sokol has resigned from Berkshire Hathaway. Sokol of the handy “Berkshire benefactor” alliteration, it might mean that Sokol will be freed up to join Middleburg… BizBeat3/30/2011

U.S. consumers face "serious" inflation in the months ahead for clothing, food and other products, the head of Wal-Mart's U.S. operations warned Wednesday.

The world's largest retailer is working with suppliers to minimize the effect of cost increases and believes its low-cost business model will position it better than its competitors.

Still, inflation is "going to be serious," Wal-Mart U.S. CEO Bill Simon said during a meeting with USA TODAY's editorial board. "We're seeing cost increases starting to come through at a pretty rapid rate."...MORE including video of the interview.

You are short. It's going against you. You try to buy it back. The offers get pulled. No one will hit your bid.
Limit up.
Locked, no trades. Wait until tomorrow to try to get out? Trapped like a rat. You'll have to hedge in the options...

There are easier ways to make a living.

From Ag.com:

Corn trade locked limit-up

CHICAGO, Illinois (Agriculture.com)--The corn market remains locked 'limit up' on the CME Group Thursday. Today's USDA Planting Intentions and Quarterly Stocks Report is providing all of the support for the commodities.

At mid-session, the May corn futures remain locked 'limit' up the daily maximum 30 cents at $6.93 1/4. Synthetically, in the options pit, the May corn futures contract is trading between $7.21-$7.28, that 's 30 cents above the futures 'limit up' price. The May soybean contract is 36 3/4 cents higher at $14.09. The May wheat futures are 36 3/4 cents higher at $7.64....MORE

So you can hedge the futures with the options. You just have to pay a premium equal to a lock limit-up on Friday.

Corn is limit up, cotton is limit up, soybeans and wheat both up 4.5%.
From the Wall Street Journal:

Agriculture futures surged after U.S. officials said grain and soybean inventories declined more than expected this winter.

Corn futures climbed 4.5% to $6.9325 a bushel at the Chicago Board of Trade, the largest allowed one-day increase under exchange rules. Soybean, wheat and cotton futures jumped as well.

The price gains came even as the U.S. Department of Agriculture in a separate report said that growers will increase their plantings of most crops to take advantage of multi-year-high prices in farm commodities. Worries remain over the spring weather, with traders and analysts fearing wet weather in the Midwest and dry weather in southern states like Texas will prevent farmers from being able to replenish low supplies.

"Our margin of error has gotten even tighter," said Don Roose, president of U.S. Commodities, a brokerage firm in Iowa, of the upcoming crop.

Prices for agriculture commodities have soared since last summer as poor weather curbed harvests around the world and global demand continued to grow. High prices for corn and other crops have contributed to rising food prices around the globe. A United Nations world food-price index stands at record highs....

...Tighter-than-expected crop supplies increase the importance for favorable growing weather this spring. Yet, meteorologists warn wet weather could prevent early planting and potentially reduce output if farmers aren't able to get in their fields in a timely manner.

"It's dangerous to have corn stocks that low. Basically you're relying on perfection in the growing season," said Sal Gilbertie, lead portfolio manager of The Teucrium Corn Fund, an exchange-traded fund....MORE

...Donald Coxe, chief strategist of Harris Investment Management and one of my favorite analysts, spoke at my recent Strategic Investment Conference. He shared a statistic that has given me pause for concern as I watch food prices shoot up all over the world.

North America has experienced great weather for the last 18 consecutive years, which, combined with other improvements in agriculture, has resulted in abundant crops. According to Don, you have to go back 800 years to find a period of such favorable weather for so long a time....

Vanilla Ice will make his debut as a mime (!) this spring at famed Chatham pantomime venue (?) Central Theatre. [BBC]

Balloon Boy dad Richard Heene made a music video about how much he loves Charlie Sheen. I could not have predicted this, but now that it has happened, I can only say, "of course." [TMZ]

From Consumerist:

The college football bowl system is alleged to be rife with corruption, some of which bubbled to the surface in an Arizona Republic report that identified rampant misuse of funds by Fiesta Bowl officials.

Sports Illustrated connects the dots and describes how the abuse hit home. Tax money in West Virginia, which was used to subsidize West Virginia University's athletic department, ended up in the hands of bowl officials, who used the cash to allegedly reimburse employees for making campaign contributions — potentially violating the bowl's nonprofit status — and give expensive gifts to power brokers....MORE

GE has violated the disclosure requirements of the Securities Act of 1933 and they know it.
That is the only explanation I can come up with for the bizarre series of statements coming out of Fairfield.
The twitter war with Henry Blodget was probably a violation too.

From the Columbia journalism Review's The Audit blog:

General Electric went into full public-relations pushback mode after The New York Times’s damaging story Friday on how it avoids paying U.S. corporate income taxes. But in doing so, the company, unable to get its own story straight, just compounded the damage.
Its pushback included putting up a fact-check on its own site, commenting on a post I wrote, and getting into an embarrassing back-and-forth on Twitter and on Business Insider with Henry Blodget.

First, its response on its GE Reports website, where it calls the Times piece a “particularly distorted and misleading account,” is chock full of red herrings and straw men. Let’s take these one by one (the bold in the bullets is GE’s emphasis, not mine):

GE pays what it owes under the law and is scrupulous about its compliance with tax obligations in all jurisdictions. We are committed to acting with integrity in relation to our tax obligations. At the same time, we have a responsibility to our shareholders to reduce our tax costs as the law allows.

Tax evasion is illegal, but tax avoidance is legal, and the Times doesn’t accuse or imply that GE breaks the law by evading taxes. A major theme of the story is how GE uses its money and lobbying might to curry favor with the government to set up the law so it can avoid taxes.

Next, GE says:

Significant losses at GE Capital during the financial crisis, largely in the United States, reduced GE’s overall tax rate below historic levels the past few years. Those losses and the subsequent reduction in taxes owed is not a “tax avoidance” strategy. Taking out GE Capital makes GE’s effective tax rate 21% over the past several years. GE’s consolidated (or overall) effective tax rate prior to the financial crisis was in the teens to more than 20%.

But the whole point of the Times’s piece is that GE uses GE Capital to lower its U.S. tax bill. Forbes said much the same thing a year ago in a story on how GE didn’t pay U.S. income taxes last year:

It’s GE Capital that keeps the overall tax bill so low. Over the last two years, GE Capital has displayed an uncanny ability to lose lots of money in the U.S. (posting a $6.5 billion loss in 2009), and make lots of money overseas (a $4.3 billion gain). Not only do the U.S. losses balance out the overseas gains, but GE can defer taxes on that overseas income indefinitely.

Further, the Times doesn’t say that losing money is a tax avoidance strategy for GE, and the paper did report, despite what GE says now, that “G.E. officials say the disparity between American revenue and American profit is the result of ordinary business factors, such as investment in overseas markets and heavy lending losses in the United States recently.” I agree that the NYT should have fleshed out the lending losses factor a bit more, but I don’t think it was required to do so here....MORE

The Federal Reserve’s “highly accommodative” monetary policy is partly to blame for rapidly increasing global commodity prices, said Kansas City Fed President Thomas Hoenig, who called on colleagues to raise the benchmark interest rate toward 1 percent soon.

“Once again, there are signs that the world is building new economic imbalances and inflationary impulses,” Hoenig, the central bank’s longest-serving policy maker and lone dissenter at meetings last year, said in a speech today in London. “The longer policy remains as it is, the greater the likelihood these pressures will build and ultimately undermine world growth."...MORE

Professor Krugman has been adamant in his defense of QE2. Back in February he said the uprising in Egypt was caused by higher food prices which in turn were caused by global warming not by the Federal Reserve. He specifically mentions the drought in Russia last summer. NOAA disagrees with Krugman's scientific theory that global warming was the proximate cause of the heatwave.

NOAA are proponents of a 'strong' version of Anthropogenic Global Warming Theory.

Listening to folks like Krugman can cost you serious money if you decide to, say, become a perma-bull on wheat because of global warming without learning the meteorological term 'blocking high'.

The funniest refutation of the good professor that I've heard was a precious metal short lamenting the horrible silver harvest of Jan. '11.

We’re in the midst of a global food crisis — the second in three years. World food prices hit a record in January, driven by huge increases in the prices of wheat, corn, sugar and oils. These soaring prices have had only a modest effect on U.S. inflation, which is still low by historical standards, but they’re having a brutal impact on the world’s poor, who spend much if not most of their income on basic foodstuffs.

The consequences of this food crisis go far beyond economics. After all, the big question about uprisings against corrupt and oppressive regimes in the Middle East isn’t so much why they’re happening as why they’re happening now. And there’s little question that sky-high food prices have been an important trigger for popular rage.

So what’s behind the price spike? American right-wingers (and the Chinese) blame easy-money policies at the Federal Reserve, with at least one commentator declaring that there is “blood on Bernanke’s hands.” Meanwhile, President Nicolas Sarkozy of France blames speculators, accusing them of “extortion and pillaging.”

But the evidence tells a different, much more ominous story. While several factors have contributed to soaring food prices, what really stands out is the extent to which severe weather events have disrupted agricultural production. And these severe weather events are exactly the kind of thing we’d expect to see as rising concentrations of greenhouse gases change our climate — which means that the current food price surge may be just the beginning.

Now, to some extent soaring food prices are part of a general commodity boom: the prices of many raw materials, running the gamut from aluminum to zinc, have been rising rapidly since early 2009, mainly thanks to rapid industrial growth in emerging markets.

But the link between industrial growth and demand is a lot clearer for, say, copper than it is for food. Except in very poor countries, rising incomes don’t have much effect on how much people eat.
It’s true that growth in emerging nations like China leads to rising meat consumption, and hence rising demand for animal feed. It’s also true that agricultural raw materials, especially cotton, compete for land and other resources with food crops — as does the subsidized production of ethanol, which consumes a lot of corn. So both economic growth and bad energy policy have played some role in the food price surge.

Still, food prices lagged behind the prices of other commodities until last summer. Then the weather struck.
Consider the case of wheat, whose price has almost doubled since the summer. The immediate cause of the wheat price spike is obvious: world production is down sharply. The bulk of that production decline, according to U.S. Department of Agriculture data, reflects a sharp plunge in the former Soviet Union. And we know what that’s about: a record heat wave and drought, which pushed Moscow temperatures above 100 degrees for the first time ever.

The Russian heat wave was only one of many recent extreme weather events, from dry weather in Brazil to biblical-proportion flooding in Australia, that have damaged world food production.
The question then becomes, what’s behind all this extreme weather?

To some extent we’re seeing the results of a natural phenomenon, La Niña — a periodic event in which water in the equatorial Pacific becomes cooler than normal. And La Niña events have historically been associated with global food crises, including the crisis of 2007-8.

But that’s not the whole story. Don’t let the snow fool you: globally, 2010 was tied with 2005 for warmest year on record, even though we were at a solar minimum and La Niña was a cooling factor in the second half of the year. Temperature records were set not just in Russia but in no fewer than 19 countries, covering a fifth of the world’s land area. And both droughts and floods are natural consequences of a warming world: droughts because it’s hotter, floods because warm oceans release more water vapor.

As always, you can’t attribute any one weather event to greenhouse gases. But the pattern we’re seeing, with extreme highs and extreme weather in general becoming much more common, is just what you’d expect from climate change.

The usual suspects will, of course, go wild over suggestions that global warming has something to do with the food crisis; those who insist that Ben Bernanke has blood on his hands tend to be more or less the same people who insist that the scientific consensus on climate reflects a vast leftist conspiracy.

But the evidence does, in fact, suggest that what we’re getting now is a first taste of the disruption, economic and political, that we’ll face in a warming world. And given our failure to act on greenhouse gases, there will be much more, and much worse, to come.A version of this op-ed appeared in print on February 7, 2011, on page A23 of the New York edition.

We've been tagging along on this story not so much because we have any special insight but rather because of the size of the potential repercussions. Here's more from FT Alphaville:

FT Alphaville has recently focused on the rise in commodity-backed financing schemes in China as a response to the People’s Bank of China’s tightening measures, which shut credit off to many small- and medium-sized companies in the country, as well as real-estate developers.
But, we would say, this is only one side of the story.

The whole thing does potentially run much deeper.
Sean Corrigan of Diapason Commodities was the first to alert, back in January 2010, that there was a strange correlation between Chinese metal imports and cheap credit availability.

He suspected some of these imports could have been connected to schemes designed specifically to game cheap money from the system — either by circumventing capital controls to bet on yuan appreciation or alternatively to bet on commodity prices outright.

As he warned at the time:

… note that the relative prices of copper, aluminium, and zinc in Shanghai vis-à-vis that on the LME bear more than a passing resemblance to the volume of new loans concurrently granted by Chinese banks (including a rough estimate of ~CNY1 bln for January, as widely bruited on the newswires).

Now, if a high proportion of the commodities imported into China over that period had more to do with speculation than real demand — this does have important implications on recovery economics. Especially since so many respected analysts took Chinese commodity imports at face value, no questions asked....MUCH MORE

If Chinese traders are using copper as a de facto currency it would mean that final demand is nowhere near what conventional wisdom would have it be. As Grandmother used to say, "When the initial condition for your macro model is 'the sky is falling' the appropriate course of action is to short sky. Do you like the potatoes?"

The Chinese are not shy when it comes to hoarding or the fungibility of commodities vs. currency, see:

“Near-term we expect the Cargill distribution could be an overhang, but see better relative performance materializing once the follow on is behind us,” Goldman Sachs writes....MORE

And:

According to Morgan Stanley, Mosaic Company (NYSE: MOS) is maintaining its Overweight rating following F3Q11 results that came in ahead of both our and the consensus expectations, in our case largely because of lower phosphate COGS.

Morgan Stanley reported that in general, the quarter was marked by volume at the low end of company guidance, but price at the high end....MORE

The company's revenue jumped 30 percent to $2.21 billion, although Wall Street had expected $2.34 billion, according to Thomson Reuters I/B/E/S. That pushed shares down almost 1.5 percent in after-hours trading....MORE

USDA released its annual Prospective Plantings report Thursday morning, showing U.S. farmers intend to plant 92.2 million acres of corn, 76.6 million acres of soybeans and 58 million acres of wheat this year. The corn and wheat numbers are higher than the trade expected, while the soybean number is slightly below the average trade estimate. All 3 figures are above 2010 planting numbers.
The numbers have trade analysts expecting limit-up early trading for corn and soybeans, with wheat following suit, largely because of tightened grain stocks numbers.

Domestic corn stocks as of March 1 were down 15% from a year ago, at 6.52 billion bushels, according to Thursday morning's USDA Grain Stocks report. Just over half that, 3.38 billion bushels, is in on-farm storage, down 26% from a year ago....MORE

For folks who read faster than they can listen. This is currently in blog format, newest first. We'll update when they put out the formal transcript.
From CNBC:

This is a live blog of David Sokol's exclusive interview on CNBC's Squawk Box.

He is discussing his surprise resignation as a top Berkshire executive and the revelation that he personally bought shares in Lubrizol before recommending to Warren Buffett that Berkshire Hathaway buy the company.

Sokol has been widely seen as the leading candidate to eventually succeed Buffett as Berkshire's CEO.

Refresh to see new dispatches. All times are Eastern.

7:55 AM: Sokol says that in the past he had invested in a company that he also recommended to Buffett, but it was a small bank that he though would be of no interest to Berkshire.

7:55 AM: Sokol: It would have been a "completely different scenario" if he was involved in Berkshire's decision to buy Lubrizol.

7:54 AM: Sokol says it wouldn't make any sense for him to invest in companies he likes, for his family's benefit, and not share his enthusiasm for the company with Buffett.

7:51 AM: "I made the decision to buy the shares because I thought it was a good investment and I'd do it again tomorrow." But Sokol says it didn't occur to him to sell the shares once Buffett showed interest in Lubrizol because he would have no influence over Berkshire's decision.

7:49 AM: Sokol says he first spoke to Buffett about Lubrizol in mid-January, telling him there is an opportunity to meet with Lubrizol's CEO. At that time, he also told Buffett about owning Lubrizol shares. Buffett was initially cool to the idea, but Sokol had dinner with the CEO for further exploration.

7:48 AM: Sokol says he bought more shares in January as Lubrizol's stock price came down enough to meet his limit order at $104/share.

7:47 AM: Sokol first started looking at Lubrizol last fall and first bought shares in December. He had put in a limit order for 50,000 shares but only 2300 shares were filled as the price rose. He decided to sell those shares later that month as part of his personal tax planning.

7:46 AM: Sokol points out that "I have never had any authority at Berkshire to to invest a dollar in stocks."

7:45 AM: Sokol says information about his purchases of Lubrizol shares was included in the news release announcing his resignation for full disclosure, to be "100 percent transparent."

7:44 AM: Sokol doesn't aspire to be CEO of Berkshire, and in any case, "The reality is Warren's not going anywhere."

7:42 AM: Sokol says in the past Buffett has talked him out of resigning but didn't do so this time. Sokol thinks it was a mistake to stay on at Berkshire the previous time he tried to resign.

7:41 AM: Sokol says he's wanted to head out on his own for several years but stayed at Berkshire when Buffett ask him to turn around the troubled NetJets subsidiary. Now NetJets doesn't need his help any more.

7:40 AM: Sokol was Berkshire is a wonderful company, but "what I like to do is build companies." His work at Berkshire involved dealing with many details.

7:39 AM: The interview begins. Sokol is sitting on the set with Becky Quick and Joe Kernen.7:35 AM: Squawk's live, exclusive interview with David Sokol is scheduled to begin at 7:40 AM ET.

Wednesday, March 30, 2011

The Lubrizol bit is either "Holy Crap or "Wholly Crap".
The guy is a billionaire on his BRK and MidAmerican Energy Holdings stock and he is far from dumb.
ZH comes close to defamation with their headline.
From ZeroHedge:

The brain behind the Lubrizol acquisition resigns unexpectedly, and the strangest press release-cum-letter from Buffett follows: "Shortly before I left for Asia on March 19, I learned that Dave first purchased 2,300 shares of Lubrizol on December 14, which he then sold on December 21. Subsequently, on January 5, 6 and 7, he bought 96,060 shares pursuant to a 100,000-share order he had placed with a $104 per share limit price. Dave’s purchases were made before he had discussed Lubrizol with me and with no knowledge of how I might react to his idea. In addition, of course, he did not know what Lubrizol’s reaction would be if I developed an interest." Frontrunning?Full release:

Economists and investors worldwide will be paying extra close attention Thursday to a U.S. crop-planting forecast, looking for signs of relief from the tight food and fiber supplies now driving up prices from the grocery aisle to the clothes rack.

The U.S. Department of Agriculture report will show how many acres U.S. farmers intend to devote to corn, wheat, soybeans and cotton, commodities whose supply and price has future implications for apparel makers, food companies, meat producers and agriculture suppliers.

The “Prospective Plantings” report, released March 31 every year, is due out at 8:30 a.m. Eastern Thursday. The outlook will likely impact near-term trading in the commodities market until traders see how much crop farmers actually put in the soil this spring.

The report comes as agricultural commodities have soared over the last 12 months, led by an 82% pop in corn futures prices and a 142% jump in cotton. Along with rising energy costs, this has prompted many food and clothing companies to raise prices this year even as consumer spending is not back to pre-recession levels.

The most recent USDA forecast calls for U.S. farmers to plant 240 million acres of corn, soybeans, wheat and cotton, a 10% increase over 2010.

“Bottom line is that this will not be enough acres,” said John Sanow, an agricultural market analyst at TelventDTN. “What we have in front of us is the most interesting and dynamic acreage battles in history."...MORE

The words of Admiral David Beatty to his flag captain after HMS Queen Mary blew up at the Battle of Jutland.
1266 killed, 18 survivors.
This was the second of his battleships to disintegrate so he was, of course, promoted, appointed First Sea Lord and granted an Earldom.
I've used the quote in reference to the market a few times meaning no disrespect to the dead. The Admiral, on the other hand...
From The Market Ticker:

Oh yeah, another one of those Chinese-style roll-up deals, right? Looks like it:

Advanced Battery Technologies (ABAT) is a $250 million market cap company listed on the Nasdaq. The company originally went public through a reverse merger transaction with a shell company called Buy It Cheap.com in 2004. The company claims to have increased its revenues from $11 thousand to $97 million from 2003 to 2010....MORE

Firstly because MLP's are so last year.
Secondly because 25 is a large number of names.
Lastly because of something we posted last August:

...One of my mentors could not stand indecisive traders. He loathed them almost as much as he loathed losses.
If one said about an instrument "I'm watching it" he'd bellow "You like to watch? What are you, a freaking voyeur?" Except he didn't say "freaking".
If you were asked about implementing a certain strategy and said "I'm thinking about it" the response was "What are you, a freaking philosopher?", again substituting a different word.

Remember that the next time somebody tells you they have something they want you to watch.

Advance word on the President's speech has him conflating liquid energy (gasoline) with electricity.
And trying a new angle, energy security, while dropping any mention of global warming.
Here's theStreet.com with one beneficiary, don't chase the stocks:

Stocks in the natural gas vehicles space surged Wednesday with word that President Obama's plan to reduce U.S. reliance on foreign oil by one-third by 2025 will include support for natural gas vehicles.
Natural gas engine maker Westport Innovations(WPRT_) rose by 8% in early trading.

Natural gas transportation infrastructure play Clean Energy Fuels(CLNE_) rose by 6% and had already surpassed its average daily volume of trading within a half hour of the market open.

Fuel Systems Solutions(FSYS_) was up close to 6% in early trading on Tuesday....MORE

I'll probably be posting something on the similarities and differences between 'messaging' and manipulation.
In the meantime here's the White House's "Fact Sheet: America's Energy Security".

I'd like to go a week without a GE post but. because they are in so many areas of the energy biz, nuclear, wind, solar natgas turbines, oilfield equipment and all kinds of stuff that runs on electricity, I can't.
From Deal Journal:

Today, General Electric continued its wave of energy deal making with an agreement to buy 90% of French power-equipment maker Converteam for $3.2 billion.

Converteam via Bloomberg

A Converteam manufactured magnet generator for wind turbines

The deal price amounts to about 15 times Converteam’s earnings before interest, taxes, depreciation and amortization for 2010, according to analysts. Credit Suisse said GE is assuming an Ebitda multiple of 11.4 times, based on 2012 estimated financials.

The Fed could announce a federal funds target of 3% but the tsunami of excess reserves now out there swamps any conceivable demand, so the Fed funds rate would be guaranteed to remain stuck at zero. The target would be meaningless.

-Ryan Avent as quoted in Why the Federal Reserve wants to drain excess reserves, Dec 2009
This is the problem for the US Federal Reserve. And now that people are talking seriously about exit strategies for the Fed, it makes sense to discuss these mechanics. Yes, I know some people are still talking about QE3, but let's deal with that if and when the economy swoons after QE2 is over.

What got me to thinking about this was a Bloomberg article about James "Seven Faces of The Peril" Bullard. Remember, Bullard is the Fed official which got us started on the road to QE2 when he said:

Under current policy in the U.S., the reaction to a negative shock is perceived to be a promise to stay low for longer, which may be counterproductive because it may encourage a permanent, low nominal interest rate outcome. A better policy response to a negative shock is to expand the quantitative easing program through the purchase of Treasury securities.

When Bullard said those words, everyone knew the Fed was going to start buying up Treasuries....MORE

I owe someone a bookmark on this, if you had it, drop us a line and we'll do the link thing.
From Boston.com:

What is property? That seems like a question with an obvious answer. It’s stuff you own, right?

Well, it’s really not that simple. Anyone with even the vaguest understanding of real estate or the financial markets can attest to the thorny nature of property these days. And what does property mean when information is increasingly intangible, living in the digital realm, and pinging around the globe? The human body itself has become a site for property debates, as the genetics and biotech industries argue for owning genes, tissue samples, and even the very processes that occur in our cells.

It might seem that the notion of property is on uncharted ground — that we’re attaching new and ever more slippery meanings to an age-old concept. Not so fast. In his new book, “American Property,” out from Harvard University Press this month, UCLA law professor Stuart Banner takes a hard look at the ways in which our nation’s idea of property has evolved over time. The nature of property, he argues, has been shifting for centuries, as society and technology change. Some types of property have vanished, like commons laws that stretch back to the first North American Colonies, while new ones have emerged, like ownership of the airwaves.

Banner is careful to point out that, through all those shifts, the real constant hasn’t been what property is or how you can prove ownership, but what our property does for us. Our modern social definition of property, Banner says, took shape around the turn of the 20th century as a “bundle of rights.” It has since evolved into a “set of relationships” among people, businesses, the state, and the land....MORE

There's a headline you don't see every day. Not that there aren't billionaire pedophiles, just that you don't read about them.
From the Caledonia Patch:

SC Johnson heir, who lives in Caledonia, admitted to having inappropriate contact with a child, according to a criminal complaint.

Samuel Curtis Johnson III was formally charged today, March 24, with repeated sexual assault of a child. A judge released him on a $500,000 cash bond and Johnson was ordered to have no contact with the child or any other minor female child.

Johnson, who lives in Caledonia, is the billionaire son of the late Sam Johnson and is the former head of Sturtevant-based Diversey, Inc. Earlier this year, he took a leave of absence for "personal reasons." Since then, his sister, Helen Johnson-Leopold, has taken the reins of the company. His brother, Fisk Johnson, is head of SC Johnson....MORE

Tuesday, March 29, 2011

Six Danish F-16s have joined the international effort to enforce the no-fly zone over Libya, though none have yet fired missiles. Cearly, an anti-Islamic conspiracy is at work:

Libya’s national TV station this morning reported that Sunday’s attack on Gaddafi’s headquarters in Tripoli was controlled by Denmark, reports the BBC.[...]

“The fact that Denmark, which has led a campaign against Islam and Muslims for years with its blasphemous caricatures of Mohammed, is leading the bombings, shows that the aggression is a crusade against the Muslim people, including the Libyan people, with the goal being to terrorise Muslims and to wipe out Islam.”...MORE

The VIX, like farmland prices, is a subject near and dear to our hearts.
From Schaeffer's Research:

On Wednesday, March 16, the CBOE Market Volatility Index (VIX) closed at 29.40 -- a rather substantial 35% above its 10-day simple moving average (SMA). Three sessions later, one had to wonder whether this VIX spike had really happened. By the close on March 22, the VIX had dropped to 20.21, almost exactly 10% below its 10-day. And then kept going and going and...
We don't see too many VIX extensions this large to begin with, much less such a quick turnaround. Here's a chart of VIX vs. its 10-day SMA, in red, vs. the S&P 500 Index (SPX), in black, over the past half-year.

Pretty amazingly, we hit both a six-month high and low for the VIX vs. its 10-day SMA within the space of six trading days....MORE

The founder of UK based hedge fund firm Odey Asset Management, Crispin Odey, is out with his latest market commentary and investment outlook. Penned on the 28th of February, Odey writes on the slightly tangential, yet increasingly talked about topic of farming and agricultural commodities.

"This is always the time of year when my farming friends ring me up every day to ask 'should they be selling forward their harvest?' The truth is that at this time of year they have little to do other than worry about it, and because they worry they are always early sellers. Like everyone, they are risk averse. By now with the harvest less than six months away, they are probably 65% pre-sold and yet they watch the price rising and falling and of course on weak days they kick themselves for not selling more.

In my hedge fund we are also forced to get involved. We are shareholders in a station in Australia which this year has grown over 23,000 acres of cotton, and plans to grow 25,000 acres next year. Cotton has nearly tripled in price in eighteen months and it is no surprise to find that we sold this year's harvest, which is just about to start, at half the current prices. Why? Because we had sold 2/3 of our crop forward by November of last year. We were the lucky ones because our neighbours further down the Darling River lost most of their crop, thanks to the flooding, and the rise in the price from $100 to $220 per bushel was nothing more than them covering that shortfall. Like many people, they hated taking a loss and the same conservatism that had led them to sell forward, led them to sit and hope that the price would come down before delivery in April. Many of these farmers face bankruptcy, in the best year for cotton in 30 years.

This year the farm will make a 30% return on our investment made nearly four years ago. If prices hold into next year we would almost earn what we paid for the farm, in one year. In other words prices are very unlikely to hold!...MORE

Creative finance should scare the ingots out of you.
[he meant cathodes -ed]

From FT Alphaville:

So says Standard Chartered bank in their latest Metals Weekly research.
The bank was among the first to bring attention to the fad of commodity-backed financing in China, and now has this update:

Three weeks ago in our report ‘Copper – A reality check from China’ (7 March 2011), we noted that finance deals were proving to be attractive to trading firms by freeing up cash amid tight monetary conditions. Borrowing copper and converting it to cash via banks is proving to be easier and cheaper than conventional borrowing. Discussions with importers this week suggest that this kind of finance has become even more popular since then.

Yikes.

They add — worryingly — that the financing scheme has got so popular that it’s actually better to stop describing copper as a commodity in China completely. It’s now seen just an ‘excellent’ form of collateral....MORE

I'm not seeing anyone else picking up on this but should there be trouble they will, the numbers could get very large.

The much delayed Apollo IPO is now said to be oversubscribed with the bookrunners adjusting the price toward the high end of the range.

I'm afraid this will just encourage Carlyle whose forthcoming IPO (along with Glencore's) I am viewing as a sign of the Apocalypse, or at minimum the end of the now two-year-old bull run.

Oaktree Capital Management is also said to think this is a good time to offload some shares on a willing public.

Here's Fortune's Term Sheet blog:

Why publicly-traded PE stocks scare me, and other thoughts on the Apollo IPO

Apollo Global Management is expected to price its IPO tonight, becoming the first private equity firm to go public since The Blackstone Group in June 2007. While we wait to see if Apollo can hit its upper target of $500 million, a bunch of related notes:

* No, the KKR "IPO" didn't count. It was basically a listing transfer from Europe to New York, without any new capital raised.

* From an investor perspective, these things scare me to death. Not because I don't think Apollo, et. al. aren't strong companies, but because I don't think many public equity investors really understand private equity. Like that guy during KKR's investor day earlier this month, who couldn't understand why KKR didn't just raise its carried interest percentage ("it would be a win-win"). Or how share prices sometimes seem more influenced by new investments than by exits.

Moreover, publicly-traded PE firms often seem to act more like indices than independent companies – based on unrealized, marked-to-market portfolio carrying values. Just look at the yo-yo trading prices of BX and KKR...

It will be very interesting to see who Apollo's major outside shareholders are come reporting time. Blackstone has relatively little big mutual fund money, while KKR's is a vestige of its European offering. I think the smart money is scared of being tied to so much dumb money.

* One major driver for these deals is the creation of "public currency." In other words, stock that can help attract new talent and/or groups of talent. But there also is a flip-side: Internal conflicts between cash and options granted to long-term return investors (private equity) and shorter-term income generators (hedge, advisory work, etc.). Hard to get the right balance…MORE

The author seems unfamiliar with the history of London but the idea is cute.
[what's wrong with plague in the 1800's? -ed]
From Fast Company:

In this latest installment, the author of "Everything Explained Through Flowcharts" (out Tuesday) travels to 19th (and 31st) century London--braving the plague, Jack the Ripper, and countless robbery attempts--to explain the 20th century's most life-changing tool.

We maintain live datasets for this strategy and can pipe customized products via our Data site infrastructure. If interested, contact us here.

Abstract:

“This is the first paper to examine the microstructure of how mispricing is created and resolved. We study dual class-shares with equal cash-flow rights, and show that a simple trading strategy exploiting gaps between their prices appears to create abnormal profits after transactions costs. Trade data from TAQ shows that investors shift their trading patterns to take advantage of gaps. Contrary to common perception, long-short arbitrage plays a minor part in eliminating gaps, and one-sided trades correct most of them. We also show that the more liquid share class is usually responsible for the price discrepancies. Our findings have implications for the literature on risky arbitrage and asset pricing more generally.”

Data Sources:
The authors compile a list of companies with two classes of stock using CRSP/Compustat during the period 1993-2006. Next, they verify that cash flow rights are equivalent and determine how voting rights differ. Their sample ends up being exactly 100 companies.

Discussion:
Dual-shares can mean a lot of things to a lot of people, but in the context of arbitrage trading, these shares are defined as shares with equal cash flow rights, but different voting rights (sometimes the cash-flow rights are not on a 1 for 1 basis, but this can be accounted for in the trading strategy). Here is an example discussed on Chipotle: click here or here. And below is a live spread of LEN and LEN.B:

Data Source: Capital IQ.

Why would there be a divergence in price for an asset that has matching cash-flows?
There are a few “rational” reasons for divergence:

Liquidity premium–one class of stock is a day-trader’s dream; the other class is only loved by widows and penny-stock newsletter authors.

Voting rights–in certain cases, voting rights may actually have real effects on the net present value of the cash flows between shares.

Who are the three gullible hedge fund managers in New York and San Francisco who just dropped $15 million in an alleged Ponzi scheme out in Utah?
The Securities and Exchange Commission won’t say, but it’s going to be embarrassing if John “Scott” Clark, the man behind the alleged swindle, ever goes to trial. We’ll find out then.

Expect some seriously red faces among the hedge funds involved. How naive are these people?

The alleged Ponzi scheme was a doozy. The SEC says that from 2006 through last year, Clark raised $47 million from investors for his firm, Impact Cash, an online payday lender making loans to the poor at Chili Palmer rates.

He promised his backers annual returns of up to 80% a year.

You heard me. Eighty percent a year.

One hundred and twenty investors took the bait.

The SEC’s Thomas Melton said Monday all that’s left of the haul is about $4 million in cash, plus Clark’s collection of fancy cars, “bad art,” expensive furniture, a snowmobile, and a $25,000 home theater system.

The cars include three Mercedes Benz, each worth more than $100,000, and a restored 1963 Corvette.

Get corporations (and unions) out of politics.
I've been addressing the legal fiction of 'Corporate Personhood' in an oblique [obtuse? -ed] fashion since the November mid-terms, links below.
Here's the Economist's Schumpeter blog considering one aspect of the argument:Peculiar people

How far should one push the idea that companies have the same rights as ordinary people?

OVER the past year and a bit the United States Supreme Court has produced two landmark rulings on the metaphor at the heart of corporate law: the idea that companies are legal persons. Unfortunately, the rulings point in opposite directions. In Citizens United (2010) the court ruled that the constitution’s first amendment guarantees companies the same right to free speech as flesh-and-blood people. This means they have the same right as individuals to try to influence political campaigns through advertisements. But in a case involving AT&T the court ruled this month that the company has no right to personal privacy.

The legal conceit that companies are natural persons is vital to capitalism. It simplifies litigation greatly: companies can act like individuals when it comes to owning property or making contracts. Timur Kuran of Duke University argues that the idea of corporate personhood goes a long way to explaining why the West pulled ahead of the Muslim world from the 16th century onwards. Muslim business groups were nothing more than temporary agglomerations which dissolved when any partner died or withdrew. Legal personhood gave Western firms longevity.

The concept of companies as people became ever more vital as capitalism developed. Until the mid-19th century companies (as opposed to partnerships) were regulated by corporate charters which laid down tight rules about what they could do. But reformers used the idea that companies, like people, should be captains of their own souls, to free them from these restrictions. The result of this liberation was an explosion of energy: Western companies turbocharged the industrial revolution and laid the foundations for mass prosperity....MORE

HT: Professor Bainbridge who writes, in part:

...I agree, as regular readers know. I also agree with Schumpeter's implicit concern that US law confers personhood on the corporation without a coherent theory of why it does so or where the boundaries of that legal fiction are to be located. As I complained after the recent AT&T decision:

Chief Justice Roberts could have summed up his opinion far more succinctly: "Because at least 5 of us say so."
The Citizens United decision last term attracted much criticism--not least from Con Law Professor-in Chief Obama--for holding that a corporation is a person and as such has certain constitutional rights. While I agreed with the holding, I was disturbed that the Chief Justice's majority opinion for the Supreme Court so obviously lacked a coherent theory of the nature of the corporation and, as such, also lacked a coherent theory of what legal rights the corporation possesses.
The utterly specious word games that drive this opinion simply confirm that Chief Justice Roberts has failed to articulate a plausible analytical framework for this important problem.

Returning to Schumpeter, however, I disagree rather strongly with his chief concern:

Nor is it unreasonable to wonder why the idea of corporate personhood should only cut one way: if companies enjoy the same rights as flesh-and-blood humans then shouldn’t they be under the same obligations? The conservative majority on the Supreme Court is in danger of digging a trap for itself: strengthening the arguments of people who insist that companies have a moral duty to pursue social rather than merely business ends.

It's not clear why Schumpeter is worried on this score. On the one hand, corporations already have the "same obligations" as natural persons in the key respects. Corporations have the same obligation to obey the law as natural persons. Corporations are taxpayers, just like natural persons....MORE

Corporations are taxpayers, just like natural persons with 975 lawyer corporate tax departments and quarter-billion dollar lobbying expenditures. We'll get around to GE's lobbying on the 2004 tax bill one of these days.

Personally I'd much rather see Goldman Sachs return to its partnership form, risking partners capital would act as a bit of a curb on their "socialize the downside" activities.

Long time readers know I've come around to the thinking that corporations (including unions) maybe shouldn't have the same rights as people, the legal fiction known as Corporate Personhood, links below.

It really is time to revisit the whole Corporate Personhood question. One stupid Supreme Court decision, Santa Clara County v. Southern Pacific Railroad, enshrines the abomination.

The Declaration of Independence was written for Natural persons. Here's a version for corps.

We hold these truths to be self-evident, that all Corporations are created equal, that they are endowed by their Creator (us by way of state legislators) with certain alienable Rights...

If proponents of the legal fiction can figure out a way to, for example, imprison a corporation for criminal activity I might be willing to change my opinion on the matter.

As far as bank regulation goes, I'm looking for the next Congress to repeal the bought-and-paid-for Dodd-Frank "reforms" and replace it with state anti-gambling and anti-bucket shop laws.
The squealing of the stuck pigs would be music to ones ears....

I also know what an abominable decision the Supreme Court made in Santa Clara County v. Southern Pacific Railroad which enshrined the legal fiction of Corporate Personhood which led, directly to the decision in Citizens United.

So let's quit messing around. Let's bring a case to the Supreme Court that lets them correct the 1886 travesty,
[you little bomb thrower, you -ed]

Here's Knowledge@Wharton quoting a gaggle of experts dancing around the issue, getting into the minutiae, with no one (except J.P. Stevens in the dissent and Peter Kinder in the pull-quote) slicing the Gordian Knot by saying "You know, maybe corporate structures shouldn't have the same rights as natural persons"...

Established businesses use any trick they can muster to stifle competition.

This has been going on as long as business has been transacted and is deleterious to the greater economy. Big business free market advocates are remarkably anti-free market in their actual behavior with negative consequences for innovation and growth in the societies in which they operate.

I don't really care much about the partisan effects of the Supremes 5-4 ruling in Citizens United v. Federal Election Commission. The important effect will be in how big business promotes rules and regulations that hamstring their up-and-coming competitors....

I'm still trying to figure out how the very premise of their business isn't a '33 Act violation and they're looking fifteen spaces ahead at some creative financing.
From PE Hub:

SecondMarket is looking into the possibility of allowing private companies to bypass venture capital firms and sell shares directly to individual investors, peHUB has learned.

“It creates a very interesting opportunity for us as a business,” SecondMarket CEO Barry Silbert told peHUB, adding, “We’re not doing this right now.”

SecondMarket provides a market where private company shares can be bought or sold. (A company’s shares can only be bought or sold if the company approves.) Demand for shares in hot Internet companies has grown to such an extent that even brand name venture firms — like Kleiner Perkins Caufield & Byers and Andreessen Horowitz — have purchased shares via secondary transactions....MORE